tv Options Action CNBC June 3, 2012 6:00am-6:30am EDT
now you stay safe. bye-bye. fear runs rachl pent. the dow has given back all of its gained for the year. it's got company, the broader s&p in correction territory as well. welcome to a special edition of "options action." i'm melissa lee. the goal here is clear. find names that can preserve your capital and help you make money. let's get into it right now. it was absolutely terrible. a blood bath. >> last summer into the fall, i think the debt volatility regime is something the investors had to live with the whole run up that we saw in q1 right up until
last month. it was the exact opposite. we saw the vix in the high teens. now we're kind of high in the vix. we're seeing single stock action that is eye-popping. look at the stock. wells fargo, if i heard it a million times this year from this network, investors talking about wells fargo being a safe haven, that stock is down 6%. that's a little bit of a panic. you're seeing that in a lot of sectors. you're seeing that. coout of the home builders. for me, think the price action is really troubling. >> we've been talking about so many people advocating dividend-paying stocks. yes, they may have been paying 5% but they lost 3%. there were no safe havens. >> you know, the first thing i would say is that, you know, there with no defensive stocks when people are concerned as i
thinks they are right now about an inflationary environmental conflicting with the big credit problems that we have over in europe. to your point, yes, we definitely did see defensive posturing in europe this week. i think it might have been in exx exxon mobile where buying downsized puts was as high as it's ever been. it was extremely sharp. then we took a look at a lot of these names. i think what people were concerned about was that the macroeconomic pressures wering are going to put pressure on the stocks and the dividend ts weren't going to matter. >> that's absolutely right. dan is right. there was no place to hide and for s&p, there was no place to hide. it didn't close on the dead low. it closed within the 500. the spider, people were really
looking for protection. 18 of the 20 biggest trade in the spider today were put. people just wanted to buy points. they wanted protection, they're worried about spain and everything that's going on in europe and they're worried now about asia, so people just were worried about everything. >> the vicks, tx, we haven't se in some time. dan, were there any sort of flyers being taken on any individual stocks that popped up to you or sectors for that matter? >> actually in the morning there was a big call spread that traded. i know mike and carter are going to talk about it in minute, but people were looking in the mid-150s to like say 165 and some as high as 170, 180 call spreads in july. very, very good size. in a lot of ways these guys are going to talk it but to me it's one of the few assets people will reach for. >> we'll get to that in a
moment. mike, what really popped out at me was trade with mcmoran. with the very sort of doomsday tone that the world markets took overall, freeport--mcmoran could be a short covering i don't want to say rally. but this was outformed by fcx but it did raise eyebrows. >> we see this and people think there's going to be some courtesy debasement and another round of qe and we're seeing it hinged to global macro economic concerns like oil and people also concerned about the debasement of the currency issue which is why they look at things like gold. when you look at cop eric it doesn't surprise me there might be a little bit of confusion there. what do we do? copper may be a place that's a save haven because of a commodity.
i think this is actually a bit of a short covering and people are still trying to figure out with. >> certainly the miners are going up and gold. let's go to the charts and see if we can find the answer here. carter did say to get short fold back in march when the commodity was topping out. carter, what's it looking like now? >> sure. there's no real structural change though that trade, which is stay. it was down real hard during the madoff period in '08. when you have a well defined trend and you balance, balance, balance off the line. when you break trend and then you throw back the line, it's like a rally, last gasp. you're thrown right back to throw here. this is where you usually run out of problem. today's knee jerk reaction to $60 in gold, this is the gld.
look at the five-year chart. it's tripled. it's the exact same thing. it's not my trend line. it's not your trend line. you can draw it as straight as you can be. it's a bad mold for gold. sell gold. >> all right. mike, would you agree with carter here? >> yeah. i think one of the things that dan pointed out and he was right about this is not everything stands to reason. when people get pap icky, i can understand why they would run into it. i would be more inclined kind of like freeport macmoran. that's one of the reasons it could be hitting yet oochz. it could be used as an atm. as we see prices fall, gold could as well. >> mike obviously has a bearish
buy on gold so you buy put. it's always good to review these strategies. in this play you want the strike to fall below the cost of the trade. that's where you see profits. above that, you'll see losses. mike, walk us through the trade. >> as you pointed out, i can't be a whole lot similar. i can't be short, naked in the direction. the july 153 is pay 3g$.25. i will admit that these are more expensive than they would have been a day ago, a week ago. if you went back a whole year you'd look at these things and they'd probably be about two bucks. these are actually fairly priced. you do see a decline in gld. that's what we're trading. you want to look for opportunities to spread, to take advantage of the fact that we're so concerned. >> where do you fall on this trade, dan?
>> it's interesting. july, somebody bought 25. 157, 172. paid about $4. they did it in two parts throughout the day. that's a lot of preemous for a $15-wide call spread. that's obviously somebody reaching for something there. like these guys said, on a day like today there's very things. people move toward goal. >> you know, one good thing about putting call spreads on goals, you'll hear it. we like selling call spreads, buying put spreads. gold has a very good dynamic than single stocks do. you can buy some of those call spreads for buyings a replacement so if you disagree with me and carter and that's what you want to do, call spreads are the better way to do it. you could spend 30% to 33% to make those bullish bets. they're a much bet ware to do it. >> why not just short the thing.
shorting gold or anything for that matter carries unlimited risk and in a risk off world you don't need that. they offers huge leather raj. limits his risks to $325. our thanks to carter. thanks and have a good weekend. moving on, facebook, it's become one of the worst ipos for all time. the stock has lost 26% in its debut and it's only two weeks old. now dan's got an options strategy that can get your money back. but before we get to that, let's talk about the stock. i had asking carter before. at one point can you employ technical analysis and he said one year. >> that's an interesting question. it takes a well to get those inputs at least from a technical standpoint. the other is where do we have to rely?
that's where people want to get their money back in a lot of ways. i don't know what you do with it. i didn't want to buy it at $38. i still don't want to buy it here. >> i think facebook has lots of problems. i would rather go with linkedin. linkedin is for people with jobs and money. i'm not a big fan of facebook. mike? >> you take a look at it. you take a look at the fundamentals. you're going to have to suggest it significantly lower, i hate to say it. if you believe in the optimistic ability that they're going to grow. you thing it's going to be $60 billion. i don't thing you can reach for it on a technical level and you can't reach for it on a fundamental level because it doesn't make sense. >> there are people who bought it and couldn't cancel their
order. they're in a tough boat. so at this point, dab, our strategy tonight is to try and actually make a little money? >> yeah. cy'll just say this. people didn't expect to make money. then the stock broke and a lot of people own this thing. look. i cannot find an identifiable catalyst why this stock should go up. the only thing is they're going to report their first quarter earnings report. so if you own this stock and you've been plugged with -- you got overfilled on the ipo. there's a strategy that makes a lot of sense. >> so let's try and help all those poor facebook shareholders out there. dan is doing a 1 x 2 strategy. you own the stock, buy one and make two calls against it.
you want the stock to go to the strike of the calls. that's where the profits maxed out. again, this is only to be done against a long. dan, what's the trade? >> that's the trachltd we would never recommend a name that's short or naked. say you own this stock much higher than where it is. i priced up the august 30, 341 tiemds 2 call spread & that cost about a dime. again, this is against a long stock position. sold two of the august 34 calls for a total of two. the premium outletting is 10 cents. i own the stock, own one of the august 30 calls and am short of the two calls. how do i make money here? below 30 i have the losses or gains that i own plus the 10 cent premium that i spent of the strilk tur.
the stock is 3$33.10, i can mak stocks. i obviously have this 390 profit buffer there you know what i mean between those two strikes. there's not a whole lot of added risk except if you own that it could be called away but you have an extra 35 $34 in gains. >> i think a lot of investors would be emphatic if the stock were sold at $38. >> i love these calls 1 x 2 because you're lever languaged in the one direction. that doesn't mean facebook can continue to drop. it can do that. >> michael, would you bother putting on this sort of trade? >> 100%. we talked about trade like this on fast money earlier with
jpmorgan. one of the reasons is the stock gets higher. buy more stock. thing this week is a good example of why you absolutely don't want to do that. people can get themselves into bad situations. when it doesn't work out. for a lot of people it didn't work out in facebook. try to work your way out of the trade. >> i think averaging down could be a huge mistake. that's drilled into an investor's quality. it may not work out. >> the thing is rngs this was so hyped. to me it's not a recommendation to buy the stock. if you're looking for ways to get some of the losses back, let's do it. >> wa. to buy facebook? only for the zuckerbergers, get it. 100 shares still costs nearly $3,000. only to be used against a long, 10 bucks aumd count be 10 bucks.
>> got a question. send us an e-mail or address. we'll a we'll answer it. we post recaps there so you want to check it out. here's what's coming up next. now, that's a whale of a good trachltd dan made a bash bet on jpmorgan but he's not down $2 billion bucks. he quadrupled hids money. how did he do it? find out when "options action" returns. coming up, pump up. this company can pump you up. now it looks like they're advertising themselves. rumor has it they hired goldman sachs to advise them on selling the praep. "options action" turned in to their calls hoping where there's smoke and fiery opportunity. who is it? the answer when "options action"
it's been a gain to a tune of about 315%. here's why. there's one way to avoid using $2 billion. risk less so you can earn more. that's just what dan did with his bearish bet on jpmorgan. he thought it was set for a plunge, but shorting the stock, not unless you want a whale of a stock. he instenld but the put for $1. now to make money he needs the shares to fall below the normal. a whole buck? >> there's almost no excuse for it. >> that's for sure. dan shows us how to do this for less. to spend less he sold it for 50 cent and completed his put spread but he did something else. he made some money easier and here's how. between the particular he spent and the 50 cents he collected
selling another he ended up pay 50g increment for the whole trade and now instenld of needing jp more fan. dan asked the profits if the shares fall by more than 50 increments or below 50 by june expiration, but there is a trade-off and by selling that put, dan has capped his gains to the different between the strike of the put that he bought and the strike of the put that he sold and since the time of the trade, jpmorgan shares have dropped a punishing 14 making this a winner. now he's their biggest fan. >> harry pot iris dead. just wants know one thing. what will dan do now? before we do that. let's see how much money was made. at the time, you would have made
14. now it's sold for $1.45. that more than trims your money. what are you going to do with it. >> as i was doing it, was jumping out of mile asset because trader after trader was calling. it kechlt on going lower and so i just couldn't -- i couldn't wait to get in until options were trading the next day. we've seen this sort of stuff before. when we laid this out, it's played out very similarly. thing when you have a trade that works ads well as this one did, i think you take the money and run and move on. >> mike, with the global backdrop, do you see a lot of cementment in the puts in terms of being short? >> i think there was a lot of bearish sentiment after this news came out to be sure.
but now, net of today's announcement. when you see the long end of the curve pall and everyone is hoping they're going to earn its way out of trouble, now you've basically ruined both parts of the picture. >> just quickly, dan, would you put on another put spend. >> i want to wait for it to balance. >> all the banks have gotten killed. i disagree with dan. it costs themselves money. goldman sachs -- >> i could not agree with you more. actually to me this one played out exactly how it should have been. this was a fortress stock and it was bad news that was stock specific and you write it down. >> okay, guys, we even got to take a break. be sure to follow us on twitter
do not miss markets in turmoil. it could be a good one. the last word. mike khouw, kick it off for us. >> i would start looking at stock strategyies and integrate names. >> scott. >> options are really expensive. boy under sell them, define my risk and sell put spreads if you're bullish. >> dan. >> that 1 x 2 call spread makes a lot of sense. it's flattened at this point and it could work in your favor. >> it looks like our time has expired. i'm melissa leechlt our time has expired. we'll see you next friday at 5:00 eastern. ne meantime, don't go any. money in motion up right after this break.